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WASHINGTON – March 13, 2017 – Riskier borrowers are making up a growing share of new mortgages, pushing up delinquencies modestly and raising concerns about an eventual spike in defaults that could slow or derail the housing recovery.

The trend is centered around home loans guaranteed by the Federal Housing Administration (FHA) that typically require downpayments of just 3 percent to 5 percent and are often snapped up by first-time buyers. The FHA-backed loans are increasingly being offered by non-bank lenders with more lenient credit standards than banks.

The landscape is nothing like it was in the mid-2000s when subprime mortgages were approved without verifying buyers’ income or assets, sparking a housing bubble and then a crash. Still, for some analysts, the latest development is at least faintly reminiscent of the run-up to that crisis.

“We have a situation where home prices are high relative to average hourly earnings and we’re pushing 5 percent-down mortgages, and that’s a bad idea,” says Hans Nordby, chief economist of real estate research firm CoStar.

The share of FHA mortgage payments that were 30 to 59 days past due averaged 2.19 percent in the fourth quarter, up from about 2.07 percent the previous quarter and 2.13 percent a year earlier, according to research firm CoreLogic and FHA. That’s still down from 3.77 percent in early 2009, but it represents a noticeable uptick.

While that could simply represent monthly volatility, “the risk is that the performance will continue to deteriorate, and then you get foreclosures that put downward pressure on home prices,” says Sam Khater, CoreLogic’s deputy chief economist. Such a scenario likely would take a few years to play out.

The early signs of some minor turbulence in the mortgage market add to concerns generated by recent increases in delinquent subprime auto loans, personal loans and credit card debt as lenders target lower-income borrowers to grow revenue in the latter stages of the recovery.

FHA mortgages generally are granted to low- and moderate-income households who can’t afford a typical downpayment of about 20 percent. In exchange for shelling out as little as 3 percent, FHA buyers pay an upfront insurance premium equal to 1.75 percent of the loan and 0.85 percent annually.

FHA loans made up 22 percent of all mortgages for single-family home purchases in fiscal 2016, up from 17.8 percent in fiscal 2014 but below the 34.5 percent peak in 2010, FHA figures show. The share has climbed largely because of a reduction in the insurance premium and home price appreciation that has made larger downpayments less feasible for some, says Matthew Mish, executive director of global credit strategy for UBS. House prices have been increasing about 5 percent a year since 2014.

At the same time, the nation’s biggest banks, burned by the housing crisis and resulting regulatory scrutiny, largely have pulled out of the FHA market as the costs and risks to serve it grew. Non-bank lenders, which face less regulation from government agencies such as the FDIC, have filled the void.

Non-banks, including Quicken Loans and Freedom Mortgage, comprised 93 percent of FHA loan volume last year, up from 40 percent in 2009, according to Inside Mortgage Finance. Meanwhile, the average credit score of an FHA borrower has fallen modestly since 2013. Mish says non-banks generally have looser credit requirements, and lenders have further eased standards – such as the size of a monthly mortgage payment relative to income – as median U.S. wages stagnated even as home values marched higher.

Here’s the worry: If home prices peak and then dip, homeowners who put down just 5 percent and are less creditworthy than their predecessors and will owe more on their mortgages than their homes are worth. That would increase their incentive to default, especially if they have to move for a job or face an extraordinary expense, Khater says. Foreclosures would trigger price declines that ignite more defaults in a downward spiral.

In turn, funding for the non-bank lenders from banks and hedge funds likely would dry up, and FHA loans would be harder to get, dampening housing.

“The non-banks (bring) a welcome change,” he says. They must meet FHA standards, he says, and are overseen by the Consumer Financial Protection Bureau.

Bill Emerson, vice chairman of Quicken Loans, the top non-bank lender, says the credit standards of his firm and his peers are stringent by historical standards and seem looser only because banks tightened requirements after the housing crash.

WASHINGTON – Nov. 11, 2015 – The Federal Housing Finance Agency (FHFA) announced an expansion of the Neighborhood Stabilization Initiative (NSI) to 18 additional metropolitan areas around the country, including four in Florida: South Florida, the Orlando area, the Tampa area and Jacksonville.
Effective Dec. 1, local community organizations in the metro areas will be able to buy foreclosed properties owned by Fannie Mae or Freddie Mac before the general public has a chance.
FHFA, Fannie Mae and Freddie Mac jointly developed NSI through a partnership with Fannie Mae and Freddie Mac and the National Community Stabilization Trust (NCST). The pilot program launched initially in Detroit and was later extended to the Chicago metro area.
“The number of REO properties that Fannie Mae and Freddie Mac hold continues to decline nationwide, but there are still some communities in which the number of REO properties remains elevated,” says FHFA Director Melvin L. Watt. “Our goal is to take what we learned in Detroit and Chicago and apply it to these additional communities as quickly and efficiently as possible.”
Watt says “giving local community buyers an exclusive opportunity to purchase these properties at a discount, taking into account expenses saved through a quicker sale, is an effective way to give control back to local communities and residents who have a vested interest in stabilizing their neighborhoods.”
The 18 metropolitan areas designated for NSI expansion include:
Akron, Ohio

South Florida one of least affordable rental markets in country

Rent takes a bigger chunk of your paycheck in South Florida than almost anywhere in the nation, and the burden is getting heavier.

Renters here, on average, spend 44 percent of their incomes for a place to live, far more than the national average of 30 percent, according to new data from Zillow.com, a home listing service.

South Florida’s rent burden ranks third-highest in the country, on par with San Francisco, Zillow found. Only Los Angeles, where 48 percent of income goes to rent, and Sarasota (47 percent) rank higher.

Although rents have risen across the country, their bite in South Florida is growing more quickly. Ten years ago, renters here paid 34 percent of their income for rent, closer to the national average of 26 percent, according to Zillow, which derives its data from rental listings and sales of rental homes.

The rental burden in South Florida has climbed 29 percent since then, compared with 15 percent nationally.

“The renter feels trapped,” said Ken Johnson, areal estate economist and associate dean at Florida Atlantic University. “They don’t have a lot of choices, and they can’t easily get out to become a homeowner.”

Tina Honey, 48, is one of them.

Last November, Honey moved to an apartment in Delray Beach, renting a three-bedroom unit for $1,861 a month. When she received her renewal notice recently, it included a $112-a-month increase.

Honey wants to find another place by the end of September, when she has to give her landlord two months’ notice. But so far she hasn’t seen a comparable, cheaper apartment in her school district, where her 16-year-old son attends Spanish River High School.

“I just think the rentals down here are ridiculous,” said Honey, a project manager for Office Depot who grew up in Detroit. “There’s no rent control, so they can charge whatever they want. That’s crazy.”

Frank Medina, 55, moved out of his one-bedroom Wilton Manors apartment complex rather than pay an extra $300 a month that would have increased the rent to $1,900.

Medina now rents a two-bedroom duplex in Oakland Park for $1,200. He likes the setup but wishes he could afford to live closer to his job as a receptionist and administrative assistant for the Genovese Joblove & Battista law firm in downtown Fort Lauderdale. He said most of the new apartments cater to people making at least $50,000 a year. The shimmering new buildings have turned into “revolving-door rentals,” he said.

“They don’t care if you stay or not,” Medina said. “There’s no rent control here, so you’re at their mercy. It’s madness. Complete madness.”

In Broward County, the median rent has increased to $1,378 from $1,243 three years ago. But pay has not kept up. The county’s $61,800 median household income is the same as it was in 2011, according to the U.S. Department of Housing and Urban Development.

The situation is the same in Palm Beach County. The median rent has increased to $1,364 from $1,173 three years ago, but the county’s $63,300 median household income is unchanged from 2011.

Abby Blake is caught in the trap. She has struggled to find somewhere for less than $1,000 a month, the amount she can afford after her roommate decided to move out of their two-bedroom rental condominium west of Boca Raton. Blake can’t swing the $1,100 rent alone and needs to find a place before her lease expires Sept. 30.

If she doesn’t find another roommate, the 25-year-old publicist may have to get a part-time job or ask her family for help.

“It’s starting to freak me out a little bit,” she said.

Tracy Anton, a longtime renter in Hollywood, moved to a smaller apartment in her same complex because she couldn’t afford a $100 rent increase.

Anton, who once had a 30-year career in broadcast advertising, is now a senior citizen who lives on a fixed income that doesn’t come close to keeping pace with rising rents and assorted fees.

To make ends meet, she sells items on eBay. She recently sold part of her porcelain cat collection. Before that, she parted with cutlery, clothes and luggage.

“The stress level is always high,” Anton said. “These days, the renter is always waiting for the other shoe to drop.”

Buying is not much of an alternative in South Florida’s improving housing market.

Since 2011, when the market hit bottom, the median home price in Palm Beach County has climbed more than 30 percent, compared with 18 percent nationally, according to the Realtors Association of the Palm Beaches.

The median home price in Broward County has climbed nearly 50 percent.

And many of the homes for sale are beyond the reach of first-time buyers. Less than a third of single-family homes listed in Broward County are priced at $250,000 or below, the price that Realtors consider an entry-level home. In Palm Beach County, it’s less than a fourth.

“It’s become a very thin market in that price range,” said Diane Paez, a real estate agent who sells in both counties. “Buyers just have to kind of hang out and hope something changes.”